Britain’s Plans for New Nuclear Plant Approach a Decisive Point, 4 Years Late

Plans for a new nuclear power plant at Hinkley Point in southwest England are in jeopardy.Credit
Warrick Page for The International Herald Tribune

LONDON — If all goes according to plan, the British energy minister on Tuesday will formally approve construction of the country’s first new nuclear power plant in nearly two decades.

But little has gone according to plan in this ambitious project, which is already more than four years behind schedule. Although envisioned as a big bet on Britain’s clean-energy future, the project has been bogged down in months of dickering between the British government and EDF Energy, the French state-controlled power company that is supposed to oversee construction and eventually operate the plant.

EDF Energy, which already runs most of Britain’s aging fleet of nine nuclear power plants, is threatening to walk away unless the government guarantees a price for the electricity that is roughly double the current rate. With tens of billions of pounds and thousands of jobs riding on the deal, the issue might ultimately be decided at the highest reaches of the British and, possibly, French governments.

“This isn’t a decision about the price for one power station,” said Dieter Helm, a professor of energy policy at the University of Oxford. “This is about whether we want a nuclear industry or don’t we. That is the question. Only the politicians can decide.”

Mark Malbas, a spokesman for Britain’s Energy and Climate Change Department, which is leading the talks, declined to discuss the negotiations in detail, other than to say that they were continuing and that the department was “focused on getting a fair deal for the consumer.”

Britain had been counting on nuclear energy as a big part of meeting its commitment to cut greenhouse gas emissions in half by the mid-2020s. Planners originally called for five or so new nuclear plants to be up and running by 2025. But with even the first of those plants not yet under construction, the concern is that as Britain closes its older nuclear stations — which generate about 20 percent of the country’s electricity, at a very low cost — new ones will not replace them.

“It will be a big setback for British energy policy if these negotiations break down,” said Tim Yeo, a Conservative who is chairman of the House of Commons Energy and Climate Change Committee.

Britain’s nuclear ambitions already received a big setback last year, when two big German utilities, RWE and E.On, decided not to proceed with construction of a plant that had been planned for Wales. The companies cited the costs and the uncertainty of getting a return on their investment.

The EDF plan calls for a plant with two nuclear reactors to be built on a headland called Hinkley Point overlooking the Severn Estuary in southwest England. Earthmovers have been carving away at a hillside there in recent months. If the green light is given, that soil will be trucked into the next valley as part of a gargantuan project that is expected to create 25,000 construction jobs.

The site — 175 hectares, or about 430 acres — is just south of a 1970s-era nuclear station known as Hinkley Point B, which is operated by EDF. And looming over the fields are the eerie, boxy shells of two 1960s-era reactors that have been shut down for more than a decade but still employ a couple of hundred people in the decommissioning.

EDF executives say they have already spent £1 billion, or about $1.5 billion, getting to the “shovel-ready” point for the reactors. After years of study, Britain’s nuclear and environmental regulators have approved designs, and about 70 percent of the necessary contracts are already lined up and ready to be signed. If and when the new plant, Hinkley Point C, comes fully online, it will supply about 7 percent of Britain’s electricity. That would be enough power to meet the needs of five million homes, with the added benefit of no carbon emissions.

On Tuesday, Edward Davey, Britain’s energy and climate change minister, is expected to announce the final decision on whether Hinkley Point construction can begin. It would be a moot point, though, if EDF did not agree to proceed.

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The sticking point has been what electricity price the government will guarantee. It has vowed not to subsidize new nuclear power plants. But energy legislation now wending through Parliament includes a means to set a floor price for the electricity from the new plants, with customers covering the cost.

With the price tag for the Hinkley Point plant estimated at £14 billion, or $21 billion, EDF is thought to be seeking a floor price of around £100 per megawatt-hour — about double the current rate for electricity in Britain. That is what EDF would need to earn the 10 percent return on investment that it is looking for, according to estimates by Harold Hutchinson, an analyst at Investec in London. The British government is thought to be pushing for something closer to an 8 percent rate of return.

EDF Energy is already one of the biggest utility companies in Britain, and the former prime minister Tony Blair used to say that a French utility’s providing energy for his Downing Street office was proof of the openness of the British economy. But the current government might fear the political beating it would take if it were perceived to be guaranteeing high profits to a French company.

Just how much the price supports would add to household electric bills is hard to gauge. The government has said that various new clean-energy measures to support nuclear energy, as well as wind and solar power, will add about 4 percent to the average household electric bill by 2020.

EDF executives have complained that they are spending £1 million a day on a project that may never happen, which is why they are threatening to walk away if there is no deal by the end of the month. A few weeks ago, according to a person close to the negotiations, Vincent de Rivaz, the urbane Frenchman who heads EDF’s British branch, went to Downing Street to deliver this message to Jeremy Heywood, the cabinet secretary, Britain’s top civil servant. The government and EDF declined to comment.

Both sides have a lot to lose if the talks fall apart.

The main task of building the nuclear cores for the new power station will go to Areva, another state-controlled French company that is a world leader in designing and building nuclear plants and works closely with EDF. For those companies, Britain provides an opportunity to prove the mettle of a new generation of Areva-designed nuclear technology known as European pressurized water reactors, or E.P.R.’s.

The Areva reactors would be extremely powerful, generating 1.6 gigawatts each — about one-third larger than the biggest of Britain’s current nuclear plants. But E.P.R.’s are also proving complex and expensive. The first two Areva E.P.R. plants, under construction at Flamanville in France and Olkiluoto in Finland, have been plagued by technical problems and huge cost overruns.

Britain’s nuclear future may be hanging in the balance. When EDF first started planning for Hinkley Point in 2009, executives thought they would have the E.P.R.’s plugged into the grid by 2017. Now even 2021 looks optimistic.

That is why Centrica, the British utility that was EDF’s 20 percent partner for the Hinkley project, has already walked away, taking a £200 million write-off.

“The main consideration was cost and time scale,” said Greg Wood, a Centrica spokesman. “We are now looking at a project that isn’t going to generate first power until 2021 or probably 2022. We were asking our shareholders to provide capital for nine years before seeing any return whatsoever.”

Correction: March 15, 2013

An earlier version of this article misstated the last name of an Investec analyst. He is Harold Hutchinson, not Hopkinson.

A version of this article appears in print on March 16, 2013, on Page B2 of the New York edition with the headline: Britain’s Plans for New Nuclear Plant Approach a Decisive Point, 4 Years Late. Order Reprints|Today's Paper|Subscribe